Overview of the Claim Function Assignment Seven Overview of the Claim Function

Claim Function Goals Comply with the contractual promise Supporting the insured’s financial goals

Contractual Promise Promise of the insuring agreement is to pay, defend or indemnify for a covered loss Fulfils promise by providing fair, prompt and equitable service To insured or A third party Claims are expected, claims representatives deal with them routinely Without insurance recovery slow and inefficient

Insurers Financial Goals Generally responsibility of marketing and underwriting Insureds and other claimants entitled to a fair claim settlement Success is reflected in its reputation for providing claim service

Users of Claim Information Marketing – customer satisfaction Underwriting – evaluation of appropriately priced loss experience Actuarial – accurate information on losses Reserving policies

Claim Contacts Public, lawyers, and state regulations Public image Emotional reaction to a claim Technology improvements Lawyers State regulators

Claim Department Structure No ideal structure exists Self insureds TPAs Agents/Brokers

Organization Chart

Personnel Claim personnel Staff claim Independent adjusters – Crawford – GAB TPAs Producers Public adjusters – represent policyholders

Claim Performance Measures Profitability Loss ratio Combined ratio (written premium) Identifies needs to reduce expenses Quality Measures Timely initial contact Timely response to outside communications Timely and accurate loss reserving Standards and procedures Timely payment or denial Explanation of payment or denial Customer Satisfaction

Claim Handling Process Framework for All Types Acknowledging and assigning claim Identifying the policy and setting reserves Contacting the insured or the insured’s representative Investigating the claim Documenting the claim Determining the cause of loss, liability, and the loss amount Concluding the claim

Assigning the Claim Acknowledgement of claim Assignment to claim representative Meeting if necessary Inspection of damage

Identifying Policy and Setting Reserves Adjusters read policy determine what coverages apply Where doubts use non waiver agreement or reservation of rights letter Setting reserves Individual case method Roundtable method Average value method Formula method Expert system method Loss ratio method

Individual Case Method

IBNR Required by accounting practices and law Schedule of penalty (loss ratio) Unreported claims Inadequate reserve (actuaries) Reopened claims

Causes of Reserve Errors Solvency issues Ability to write new business – capacity Limited information initially Stairstepping Claims open for several years – see handout Claim reserve should reflect the ultimate cost, not present value

Contact with Insureds Representative Face to face not required Claims can create strong emotions, i.e. anger and grief Public adjusters – mostly property claims Recorded interview

Good Faith Insurance polices are contracts of utmost good faith Waiver and estoppel – see example

Investigating to Claims Begins as soon as it is assigned Claims person knows when they have adequate information for a decision Need to determine Cause of loss Amount of loss Liability

The Investigation Claimant Insured / witness Accident scene Property damage Medical prior claims

Subrogation Where insured not a fault and others negligent Insurer entitled to insured’s rights Costs a factor in proceeding Intercompany arbitration Usually binding on both

Documentation Diary Systems – needed because handle many claims Dates for review computer controlled Status of notes Clear, concise Timely Fair and balanced investigation Objective comments Thorough investigation

File Reports Internal – distribution within organization Large losses, deaths, etc. Often use internal electronic claim file Status reports External – for producers, advisory organization

Cause of Loss, Liability and Amount Investigation determines cause of loss, liability and amount Liability determined based on facts Statutory Case law Property damage – cost of repair, replace Bodily injury Extent of injury Amount of pain suffering

Concluding the Claim Decide if to pay or deny Must negotiate with insured or claimant ADR – Alternate Dispute Resolution Litigation occurs if no resolution

Payments Claim person issue payment Proper parties Check, draft, electronic transfer Proper parties Mortgages Loss payees Parties named in policy have rights Data base – compliance with laws Child Support laws

Claim Denial Must be timely Strict guidelines exist Denial letters issued by lawyers or drafted by Certified mail used

Alternate Dispute Resolution Mediation – mutual outside party Arbitration – often binding Appraisals – property policies Mini-Trials – test validity of position Summary Jury Trials – offers a forum to present merits

Litigation Occurs when agreement can not be reached Most policies require insurers to defend insureds Claim person selects carefully defense law firm Lawyers role is insureds advocate

Law of Bad Faith Developed in response to perception that insurers placed their interest ahead of insureds Insurers sued for breach of contract Failure to fulfill contractual promise Failure to comply with duty resulting in bad faith claim Consensus is that insurance contracts invows public interest Requires a higher standard of conduct

Public Interest State regulators – protect consumers and insurer insolvency Ensure that insurers pay claims they owe Higher standard conduct – upmost good faith Both parties are to disclose all information needed Insurer controls investigation and settlement Courts differ as bad faith based on negligence on gross on intentional misconduct Some courts reject a negligence standards

Legal Environment Becoming more common and expanding Bad Faith Law is case law State legislation can pass laws rejected by voters Wyoming California

Good Faith Elements Thorough, timely, and unbiased investigation Complete and accurate documentation Fair evaluation Good-faith negotiation Regular and prompt communication Competent legal advice Effective claim management

Federal Statues Applicable Health Insurance Portability and Accounting Act – 1996 Gramm-Leach-Bliley Act Sarbanes-Oxley Act Fair Credit Reporting Act

Complete and Accurate Documentation Fair Evaluation – especially liability claims Prompts evaluation Unreasonable time limits – courts dismiss If near policy limits prompt reply Use of outside sources Co-workers Supervisors Defensive lawyers People of typical jury Computer evaluations Jury verdict research companies

Good Faith Negotiations Realistic offers Non emotional Policy provisions Arbitration classes Any other forms of voluntary resolution Communications – critical aspect of good faith Involve defense lawyer Competent legal advice

Effective Claim Management Consistent supervision – responsible for quality control Thorough training – continuous and consistent training Manageable case loads – work load manageable

General Release

Unfair Claim Settlement Practices